There is no disputing that 2016 has been a tumultuous year for many retailers, corners have been turned, green shoots have appeared and store doors have closed for the last time. The question is, what will 2017 have in store for retail? Here we set out our thoughts on what retail trends in 2017 will be creating a buzz.
The grocery sector in the UK is worth a staggering £180bn so any minor bump in the road can have significant financial implications for the retailers in the sector and for the consumer. The key trends we predict are not surprisingly centred on price, costs and driving margin per square foot.
- Price architecture will dominate promotions. Opening price points that are competitive across all the grocers including the discounters will be a focus much like Tesco’s Farm brands offer. Remember the backdrop will be price inflation caused by Brexit and the consequences of fuel price hikes.
- Sainsbury has acquired Argos and will be using it as a margin enhancer rather than a traffic driver. All the grocers will be looking for ways to grow store margins that don’t depend on price increases. Volume led events will be one way to achieving that.
- The ebb and flow of innovation suffers in times such as these. Volume is king as retailers rationalise ranges to gain clarity and increase margin from suppliers by driving item volume. The fewer items a retailer has, the more potential they have to enhance volume and therefore margin. Next year’s battle will not be won on price alone however.
- Retailers will be looking to reduce the cost of the labour charge to offset the increasing national living wage commitment. The balance will between easy wins like anti-social pay rates and social conscience and bad PR. The more sophisticated retailers will look to reduce complexity in-stores and streamline tasks, to genuinely give more time to stores. It’s not easy to do though and we would expect a period of operational weakness as better processes bed in and resistance to change lessens.
- The use of technology available to customers will explode in 2017. Some will be heralded as the future of retail, but none of them will be. Hype and PR driven, they could be highly promising but none will payback in 2017. The only exception will be revenue earned from suppliers who have been asked to fund some of the development and execution.
- Online grocery is still in its infancy and will continue to grow in 2017. Investment in online sales and infrastructure and tech to support it will be more than can realistically deliver a return and the risk is that store investment could fall short, leaving stores under-invested, and customer service exposed.
- Space will be filled in larger format stores by known footfall and profit drivers. Expect to see reviewed and possibly renewed collaborations in the grocers on a store by store basis dependent on demographics. The results could be a mixed bag of store offering.
The luxury retail sector is just as susceptible to economic ripples as any, but that impact can be somewhat cushioned by international trading. With Brexit comes another scenario and we expect Luxury brands and retailers to be looking to protect their brand positioning and build on developing consumer shopping channels.
- As the country becomes increasingly worried about the BREXIT impact there will be some slow-down in the purchasing of high value items and more people will adopt the purchase cycle from the recession of ’08 – ’14 where they are more selective about their spend and more likely to try own label / tertiary brands.
- We expect a high degree of direct marketing from Luxury brands next year as they seek to grow the portion of online trade from 5% to 18% by 2020. They will need to improve their platforms and their ability for customers to purchase particularly on mobile.
- The “See now Buy now” effect will further accelerate mobile commerce. Burberry are an early adopter have some of the best technology to enable this. More retailers and brands will follow in 2017 as they seek to engage with their audience faster to beat fast fashion retailers to the sale.
2017 will inevitably see more facias close on the High Street as economic pressure persists. These will be brands that have not differentiated, innovated or created a good value proposition for their customers in a price savvy market. The risk is brands employ short term tactics to the detriment of long term strategies.
- The weakened Pound will negatively impact margin in 2017, pushing up prices to consumers and forcing retailers to add value to their range. The retail environment, customer service and personalisation will have to come into focus to compete with the value retailers that stand to gain.
- Interest rates have nowhere else to go except up, increasing mortgage payments and credit. A cut in disposable income will put pressure on retailers to maintain prices but with cost increasing too, we expect to see retail closures in 2017. More pension fund deficits will inevitably come to light leaving retailers with a hole and nothing to fill it with.
- Tourist purchase power will offer an opportunity to retailers in tourist hot spots if they are agile and adept enough to react. New ways of embracing technology to reach international customers will abound.
- Staycations will be attractive in 2017, UK holidays to UK citizens will appear relatively cheap. Local tourism has an opportunity to ride the wave as do retailers in travel hubs. The downside is fewer UK travellers for the airlines and travel companies.
- Exports will continue to rise and those retailers that are brave enough may feel they have a burning platform to push expansion outside of the UK.
- There will be a significant focus on what the fast fashion brands will do to react to ‘see now buy now”. Currently they have approximately six months before the catwalk collections hit the shops, to create their own versions. But this time frame will be eroded in the future. So they will definitely want to sharpen their lead times, but there will obviously be a limit if they are going to wait for the catwalk. Therefore, we expect brands to start their own cat walk campaigns, as Top Shop have, and recruit designers to lend their name to ranges.
For retailers to navigate the uncertain path that Consumers will carve, agility and creativity will be the key skills they will need to nurture. Take the assets that they have and make them as relevant and as productive as possible.
Nothing is more certain than change and 2017 will see the retail landscape change. If you want to know which retailers are likely to struggle in 2017, simply walk the shop-floor in a number of stores in the same week, and then visit their competitors. You cannot hide the neglect in corporate strategy or the failure to execute it on the shop-floor. In this space everybody can hear you scream, if they know what to listen for.